A reader called my attention to one of the anomalies in Honolulu’s current real property tax structure.
Did you notice the list of “nonconforming use certificates” for transient vacation rentals includes numerous units in several Waikiki condominiums, including the Royal Kuhio, 444 Nahua, Waikiki Banyan, and Waikiki Sunset.
The latter two condominiums operate as hotels managed by Aston.
The interesting thing is that although these buildings operate as hotels, their individual apartments pay property tax at the rate reserved for residences rather than the higher rate that applies to hotels.
The reader who called this to my attention noted:
Aston operates rental programs in each. If you look in the HTA
Visitor Plant Inventory you’ll see that the Sunset has over 300 units
in Aston’s program. It’s a very successful and lucrative operation
The units are taxed at the residential rate of $3.50/$1,000 rather
than the resort rate of $12.40/$1,000. It seems to me the City is
leaving big money on the table here, as there are a number of condo
hotels mauka of Kuhio Ave.
The Waikiki Sunset’s most recent annual report indicated just 4.14 percent of its 435 units are owner occupied. Most of the rest are likely in that rental pool.
A condominium unit used for transient vacation rentals and appraised for tax purposes at $250,000, would have a tax bill of $875 annually if taxed at residential rates, while the same unit at hotel rates would pay $3,100 in real property tax. The city could certainly use those additional tax revenues.
Mayor Kirk Caldwell introduced a bill last year that would have put all transient vacation and bed-and-breakfast units into the “hotel and resort” category, taxing them at the higher “hotel” rate (see Bill 37-2013).
It went nowhere.
According to a newsletter put out by Council Chair Ernie Martin after that debate:
There were cries of protest from both sides of the TVU issue. Advocates for increasing the number of permitted TVUs contended that it was unfair to increase the proper tax on legal vacation rentals when the owners of unpermitted and thus illegal units would simply evade both a property tax increase and the general excise tax on rental revenue. Opponents of more TVU’s consider the tax proposal secondary to the real issue of the lack of enforcement of the rules and the failure to force compliance with laws already on the books.
I don’t understand the history of these condoles from the 1970s, and how they managed to operate as hotels without being taxes as hotels. There must be some interesting politics there.
In the meantime, perhaps the approach of Bill 37 could be targeted at the buildings that are operated as hotels relying on those “nonconforming use certificates.”
It would also be interesting to dig deeper into the economics of those condoles. How much of the revenue flows to individual owners, and how much is raked off by the hotel management company? Who controls the condominium boards, and how do those boards deal with the power of the hotel company? Is turnover high or low? Lots of questions that might yield interesting answers.